Summary

During the first quarter of 2008, the Internet and Digital Media sectors raised more than $1.8 billion in new venture capital investment between 216 companies. That represents a 22% increase in total investment over the previous quarter. The number of companies funded also increased, by 28%. These numbers reflect significantly greater activity versus the previous quarter. M&A transaction activity was up 907% over the previous quarter, with 8 companies receiving at least $934 million in disclosed consideration, though the total amount was skewed by a single large transaction.

The eCommerce sector saw only four deals totaling $17 million, down 70% from the last quarter. Software financing remained healthy, with 191 transactions totaling $1.27 billion, up 32% on the previous quarter and spread across a variety of market segments, with bigger deals going to emerging markets like Enterprise 2.0 companies and those providing analysis services to advertising. Open source received a further boost from SugarCRM's two financing rounds totaling $34.5 million.

There was no eCommerce M&A activity this quarter, while the Software sector reported $2.18 billion in 34 transactions, dominated by Sun's $1 billion acquisition of MySQL, the world leading open source database used by many websites. In the Software sector, the M&A totals achieved represent a further decline of 24% in the number of transactions compared to the previous quarter. While the absolute value of deals closed represents a rise of 29% compared to the previous quarter, when we strip out the MySQL deal, the decline in deal value compared with the previous quarter is 30%.

Funding Activity

Internet

Once again, the Internet sector accounted for a large portion of funding activity, with 187 companies sharing in nearly $1.5 billion in venture financing. Deals ranged from widget developers like SplashCast receiving $4 million in Series A funding led by Emergent Growth Fund, to Chumby, which makes a small, playful Internet-connected device which runs widgets and received $12.5 million in Series B financing led by JK&B Capital in order to expand to 3rd party hardware.

The largest funding event was for Oversee, which received $150 million from Oak Hill Capital Partners. The online marketing and domain name company will use the money to augment growth and to purchase technology (likely through acquisitions such as the purchases of SnapNames and LowFares.com last year). The company had previously secured a $60 million line of credit in Q1 of 2007.

Lifestyle- and fashion-focused Glam Media raised $85 million in a Series D round led by Hubert Burda Media. The company aggregates content from over 450 online publishers and communities in order to sell advertising, marketing and sponsorship packages to premium consumer brands looking to reach an upscale, predominantly female market that includes 25 million users in the U.S. market alone.

Etsy, which provides online storefronts and billing services to small craftspeople, raised $27 million from Benchmark Capital and Union Square Ventures. The company will use the funds to work on expansion into new markets worldwide, with plans to eventually become public through an IPO.

Automattic, which provides support, hosting and premium services for open-source content management and publishing systems such as WordPress and bbPress, received $29.5 million in Series B funding. The round was led by Polaris Venture Partners, with True Ventures and the New York Times Company also participating. The company has said it would use the money for growth and product development.

A number of companies producing content management and distribution tools used by individuals and small businesses to publish video and multimedia received funding. These include: